At CSG Capital Partners, we are constantly working with our clients to help them conquer all things financial. With this quarterly newsletter, we plan to share financial planning tips beyond our investment and market insights, to help you take control of your financial success.
The focus for each client is different, however, planning at every income and wealth level pays tremendous dividends. Whether it’s creating a budget, thinking through a retirement cash flow strategy, minimizing and managing taxes, or transferring wealth tax efficiently to family or charitable institutions, our team is here to provide financial peace of mind. Each quarter, we’ll focus on pertinent topics, giving you suggestions and insights from our team of experienced advisors.
As Ben Franklin (and many others) so eloquently said, "In this world nothing can be said to be certain, except death and taxes." With April 15th fast approaching, here are a few tax-focused planning strategies to consider in 2022 (and beyond):
1. Take Control of Your Taxes
If you are paying federal estimated taxes in 2022, monitor your tax payments. This will help you ensure that you exceed 90% of your 2022 estimated liability or 100% (110% for certain taxpayers) of your 2021 tax liability to avoid underpayment penalties.
2. Maximize the Benefit of Your 401(k) or Other Employer-Sponsored Retirement Plan
For the first time since 2018, the IRS increased 401(k) and 403(b) contribution limits: you can contribute up to $20,500 for 2022. The catch-up contribution for participants aged 50 and older remains unchanged at $6,500.
3. Utilize the Underutilized: Health Savings Account (HSA) Contributions
For 2022, you can contribute up to $3,650 for individual coverage and up to $7,300 for family coverage into an HSA. Remember that an HSA is not a “use or lose it” benefit. If you do not need to withdraw from your HSA for current medical expenses, you can allow the account to accumulate. A great way to generate tax-free income in early retirement is to withdraw from the HSA for prior year medical expenses. Food for thought - keep detailed records.
4. For Business Owners
Many business owners are unaware that they have access to many tax-advantaged tools that others may not. For example, let’s discuss the multiple retirement plan options available and find the one that would best suit you as the owner and likewise, your employees. There are also tax credits and deductions that many business owners are unaware of, such as credits for pension plan startup costs, childcare offerings, healthcare tax credits, and the work opportunity tax credit. For more information, visit this IRS publication.
5. Create or Update Your Estate Plan
Estate planning is by far the most overlooked area of financial planning. It is also one of the greatest pitfalls of personal wealth. From establishing the standard Will, Power of Attorney, and Healthcare Directives to advanced estate and trust planning ideas to best accommodate inter-generational wealth, we’re here to help guide you through the process.
6. Consider Gifting to Family and Charitable Organizations
Most clients focus on how their wealth will transfer to their heirs after they are gone. It is often equally or more effective for both parties when gifting strategies are implemented during a client’s lifetime. If you are fortunate enough to have surplus wealth, consider making financial gifts to loved ones. For 2022, you may gift $16,000 per person to as many people as you like without being subject to gift tax and IRS filings. This reduces the value of your estate while providing an immediate benefit to others. And this only scratches the surface; additional strategies exist for clients at all levels of wealth.
7. Enhance Your Charitable Giving By Creating a Donor Advised Fund or Donating Highly Appreciated Stock
If you make charitable contributions, consider gifting highly appreciated stock in lieu of cash. A gift of appreciated stock is an itemized tax deduction, and the charitable organization will not have to pay tax on the capital gain. You can then repurchase the stock with the cash you would have otherwise donated as an effective way to raise the cost basis in your portfolio. Another great option for many of our clients is the use of Donor Advised Funds. They are very simple, flexible, and tax-efficient tools to support the charitable inclinations that matter most.
8. Consider Roth Conversions for Existing IRA and 401k Assets
Roth conversions are a great option for those clients willing to pay some taxes now to grow their retirement assets, and ultimately withdraw the conversion amount and future earnings tax-free if certain criteria are met. Taxes and conversion amounts can be spread over multiple years to help minimize the current-day tax implications. This strategy is especially attractive to clients who have, or expect to have, significantly higher Required Minimum Distributions than they will need to fund their expenses. Putting a plan together will clearly show clients if this will be a situation they may find themselves in.
We believe that achieving your goals begins with building a plan that can adapt as your life changes. We want to help you to maximize your likelihood for success, while minimizing or eliminating roadblocks and hurdles that stand in the way. Let us help you tackle these topics and more.